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how to be credit smart

Credit can be good when used responsibly, but it can also get you into a lot of trouble. Here’s how to be credit smart.

There’s a difference between good credit and bad credit. When you use credit responsibly (that’s the good kind), it can help you achieve your dreams. But, when credit is used irresponsibly (the bad kind of credit), it can get you into serious money trouble

Using credit for the right reasons

Good credit can benefit you in the long term, for instance when used to buy property, renovate your home, buy a car (to be able to drive to a better job), start a business or advance your studies to help you land that promotion.  

Bad credit, on the other hand, doesn’t contribute to your long-term wealth or wellbeing. Using your credit card to buy consumables like takeaways or alcohol or not remembering what you spent the money on, for example, is problematic. You’ll end up paying interest on this money with nothing to show for your overspending.  

Which type of credit is right for you?

Different situations call for different types of credit.

Let’s say your car breaks down. It needs to be repaired quickly because you have to drive to work. You have insurance, but the repair costs are too small to justify claiming. Plus, you’ve had an expensive month, you had to visit the doctor with a recurring ear infection and your fridge stopped working. As a result, you’re left with no extra money to pay for your car repairs.

Although you should have a savings account reserved for rainy days, your credit card can come to the rescue during emergencies like these (health, financial and personal).

Now let’s say you’ve decided it’s time to renovate your home. Perhaps you need to repaint the exterior, replace all the carpets or remodel the kitchen. Maybe you wish to turn your unused garage into a home office or playroom. You know it’s going to cost more money than you have saved, but you also know it will increase the value of your property.

That’s where a Capitec Access Facility, which can give you up to R250 000 in revolving credit to use as and when you need it, comes in handy.

How to be good for credit

Even if you use credit for the right reasons, you still need to budget for it and know that you can afford to repay the monthly instalments.

In addition, being responsible in how you use credit helps build a good credit history. Having a good credit history is essential when you need credit for larger transactions, such as buying a house. Factors that will affect your credit rating include:

  • Your repayment history: You need to pay all your instalments on time and in full every month. Missing a payment or paying less than the minimum amount will have a negative effect on your credit rating
  • Your outstanding credit balance: Credit providers look at the total amount you owe on all your loans to see how much you’ve already repaid and how often you use credit
  • The length of your credit history: The longer your credit history, the more information is available about you and the better the picture of your long-term credit behaviour
  • The types of credit you have: Having a variety of credit options shows that you’re able to manage different types of credit, for example a credit card, store account and personal loan
  • New credit agreements you’ve recently taken up: Don’t open too many credit accounts at the same time, as this may suggest that you’re in financial trouble and relying on credit to survive

The cost of credit

Of course, there are consequences to taking on credit. And it can introduce temptation and lead to impulse buys. Be careful of doing this; when you need the money for an emergency it won’t be available. Make sure you’re able to distinguish between a want (something you want, like new phone) and a need (you need to buy electricity or pay your rent).

Credit may help you achieve your goals, but borrowing money is never free. When you take out credit, you’ll be responsible for paying:

  • An initiation fee
  • A service fee
  • Interest
  • A credit insurance premium

Should you fall behind on repayments, you’ll also have to pay default administration charges and collection costs accrued when your credit provider tries to collect outstanding or overdue debt from you.

These fees and charges add up over time, and the longer you take to repay your debt, the more you’ll end up paying.

Read the fine print

Before entering into any credit agreement, it’s a good idea to:

  • Insist on seeing the credit agreement/quotation. Go through it carefully to ensure you know exactly what you’re agreeing to pay before you sign
  • Make sure you know precisely how much the interest, fees and charges are
  • Compare the costs of different credit providers to choose the best option

Make your dreams come true

Applying for an access facility can help you achieve those big and expensive dreams or plans. And it’s available to anyone who qualifies, whether or not you bank with us. Simply visit a Capitec branch with your valid SA ID document or smart ID (new clients only) and your latest 3 consecutive salary slips. If you’re not a current Capitec client, you should bring a bank statement that shows your last 3 consecutive salary deposits.

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